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Thomas Malthus (1766-1834) his father was a friend of Hume, admirer of Condorcet, and disciple of William Godwin > Godwin believed in utopia based on reasons

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Thomas Malthus (1766-1834)
- his father was a friend of Hume, admirer of Condorcet, and disciple of William Godwin

-> Godwin believed in utopia based on reasons and blamed want on social institutions such as marriage and property
-> Malthus’s work dispute’s his father’s view

- mathematically trained at Cambridge

- a cleric and the first professor of Political Economy in Britain

- enormous influence
-> lead to the description of economics as the ‘dismal science’

Major Publications

1798 Essay on the Principle of Population (published anonymously)

1803 2cd edition of the Essay
- added the three postulates of the principle and the check of moral restraint

1814 Observations on the Effect of the Corn Laws

1830 Principles of Political Economy

1830 A Summary View of the Principles of Population

Essay on the Principle of Population ((2cd edition, 1803)

Malthus begins with two “fixed laws of nature”

1) “food is necessary to the existence of men”

2) “the passion between the sexes is necessary and will remain nearly in its present state”

=> “the power of population is indefinitely greater than the power in the earth to produce subsistence for man

1) “population, when unchecked, increases in a geometric ratio” (1, 2, 4, 8, 16, …)
– “as a result of actual experience, we will take as our rule” “that population, when unchecked, goes on doubling itself every twenty five years”
- the actual experience is the United States where “the means of subsistence have been more ample, the manner of the people more pure, and consequently the checks to early marriage fewer, than in the modern states of Europe”–

2) “Subsistence increases in an arithmetic ratio” (1, 2, 3, 4, 5, ..)
– the most that one can allow is “that by the best possible policy, by breaking up more land and by great encouragement to agriculture, the produce of this Island may be doubled in the first twenty-five years …The very utmost that we can conceive is, that the increase in the second twenty-five years might equal the present produce”. The quantity of subsistence can only increase by the present amount every twenty-five years.

=> increase in population is limited by increase in food
=> subsistence existence (eventually) for the mass of the population

- population “oscillates” moving in “retrograde and progressive movements”
- excessive population relative to subsistence lowers the wage rate (since population is large relative to demand), causing labourers to work harder, and increases the cost of provisions. This causes many ‘severe distress’ which discourages marriage and population growth. The low wage rate, harder work of the labourers, and excessive population then “encourages cultivators to employ more labour on their land” to increase subsistence. “The situation of the labourer being then again tolerably comfortable, the restraints to population are in some degree loosened”

- the principle of population may be summed up by

1) “population cannot increase without the means of subsistence”

2) “population does invariably increase where there are means of subsistence”

3) “the superior power of population cannot be checked without producing misery or vice”

The only means of keeping the population within the limits of subsistence are:

1) Positive checks (“confined chiefly … to the lowest orders of society”)
a) Misery
– famine, wars, pestilence
b) Vice
– birth control, i.e., sexual activity without procreation

2) Preventive check – moral restraint
“abstention from marriage not followed by irregular gratification”

- opposed the Poor Laws (provisions and shelter for the poor)
– “first obvious tendency is to increase population without increasing the food for its support”
– “Secondly, the quantity of provisions consumed in the workhouses … diminishes the shares that would otherwise belong to more industrious and more worthy members” of society

- the labouring poor rarely save “but all that is beyond their present necessities goes, generally speaking, to the ale-house”. “It is a general complaint among master manufacturers that high wages ruin their workmen”.

- scarcity is the cause of institutions such as property and marriage
(as against Godwin who argued that these institutions created vice and misery)
-> self-love, not benevolence, is the “moving principle of society”

The Theory of Gluts

Law of Markets” (Smith, etc.)

- Supply creates its own demand => no possibility of general overproduction

Classical Monetary Theory

- money is merely a means of exchange (transactions function only)
=> quantity theory of money (Locke, Hume)
-> price level determined by proportion of money and goods
-> dichotomy of money and goods
-> money is neutral
-> change in money supply => change in absolute prices but no change in relative prices

Say’s Identity

James Mill (1808)

all goods are sold through reallocation of existing output

- “there never can be a superabundant supply in particular instances, and hence a fall in exchangeable value below cost of production without a corresponding deficiency of supply, and hence a rise in exchangeable value beyond cost of production in other instances.” (2cd edition, 1824)

a) constant money supply
– glut in one sector => fall in price in this sector
=> unspent money available to spend elsewhere
=> increase in prices of desired good
-> reallocation through relative prices

b) change in money supply
–same reallocation through change in relative prices but at a different absolute price level
=> market clearing relative prices compatible with different absolute price levels

- Mill’s approach essentially assumes that money from a sale is immediately spent so than demand and supply are identical

Say’s Equality

J.B. Say (1803)

- glut rectified by producing more output

-> an increase in output => income to buy the glut and output to for unspent income

- Say essentially allows for temporary holding of money
-> demand and supply are equal in equilibrium but not identical

Hence the classical position was that gluts (overproduction, unsold commodities) ended by:
a) change in relative prices (James Mill)
b) an increase in output (J. B. Say)


- denied overproduction
– re. the producer: “By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person”

- distinguished between
- productive labour, which produces surplus beyond wages expended, and unproductive labour, which produces only the value of wages
– productive consumption, which was spending that produced a surplus, and unproductive consumption

- capital as productive consumption increased the demand for labour
-> capital accumulation could not cause overproduction because high capital accumulation increased the wage rate, reducing the profit rate to curb investment


- borrowed Smith’s concept of labour commanded. “when the value of an object is estimated by the quantity of labour of a given description which it can command, it will appear to be the best of any one commodity, and to unite, more nearly than any other, the qualities of a real and nominal measure of value”

- developed a cost of production theory of value – value is the amount of stored and current labour plus profits – which equals the amount of labour it can command

- defined effective demand as demand that is high enough to ensure continual supply
– effective demand equalled labour commanded

Simple Reproduction

- continuing production => sale at value, i.e., a price covering outlay plus profits

- labourers can not buy the product since wages are less than total value
(labour commanded > wages)

- exchange between capitalists can not realize the profit because one’s gain in exchange is at the expense of the other
- there is no net profit in exchange among capitalists [similar to Mercantilists]

- unproductive consumption provides the solution, i.e., those who spend without producing
“It is absolutely necessary that a country with great powers of production should possess a body of unproductive consumers”
– capitalist are unlikely to be unproductive consumers since this is not “consistent with the general habits of the generality of capitalists”

- unproductive consumers include landlords, menial servants, statesmen, soldiers, lawyers, judges, physicians, and clergymen.

- Malthus recognizes that unproductive consumers must purchase the goods
-> effectual demand must be sufficient for the purchase of all goods
“Effectual demand consists of two elements, the power and the will to purchase … A country may certainly have the power of purchasing all that it produces, but I can easily conceive that it not have the will” [letter to Ricardo]
“If consumption exceed production, the capital of a country must be diminished, and its wealth must be gradually destroyed for its want of power to produce it; if production be in great excess above consumption, the motive to accumulate and produce must cease from want of an effectual demand …The two extremes are obvious; and it follows that there must be some intermediate point”
– Keynes praised Malthus for this insight that the issue is not whether income and output are equal (Say’s Law) but whether income is spent on output, i.e., whether or not expenditure equals income/output

- Malthus pointed to saving as the critical equilibrating factor (again impressing Keynes)
“National saving … considered as the means of increased production is confined within much narrower limits than individual saving. While some individuals continue to spend, other individuals may continue to save to a very great extent … but the national saving … must necessarily be limited by the amount which can be advantageously employed in supplying the demand for produce”
– Malthus saw money “as absolutely necessary to any considerable saving” and thus differs from the merely transactions approach of most classical economists


1) capital accumulation with unchanged technology
-> new capital employs the same proportion of workers as old capital
-> labour must grow at the same rate as the old capital
-> but “a sudden increase of capital and produce cannot affect a proportionate supply of labour in less than sixteen or eighteen years”
=> a) some capital would lack labour and thus be idle
b) a temporary shortage of labour
-> an increase in wages
-> a fall in investment since profits would fall

2) capital accumulation with technological change
-> capital would substitute for labour
-> decrease in demand for labour (at least relatively)
-> decrease in demand for goods

In cases 1 or 2, excessive profits => unsustainable rate of capital accumulation
-> solution is the unproductive class

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